Bernard Zick's

Advice for the Impatient Investor

For real estate investors who don't have time or money to waste!  

November 2004

Editors: Bernard "Barney" Zick bernard@zick.com, Karen Zick and Amy McIntee

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In this issue:

Getting Started

Advanced Strategies

A Special Offer Just for Subscribers!

Foreclosure Boot Camp in Houston

Upcoming Events

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Getting Started:

Q.  Bernard, I have a friend and client in the Houston area and they need a small hard money loan using a second on a home he has recently purchased.  I would appreciate receiving the referral information on your source and of course would be willing to pay you a referral fee for the referral based on the outcome of the loan request.

This is a house that he bought for his own use and had to rent it out for now.  It is in Woodville, TX and he says it will appraise for $50,000 and he owes $39,000 on it now.  This is payable at the rate of $330. P & I at 9.25%.

If there is interest in lending him $5000 as a second he would be very interested in such a loan.

He will be using the funds to organize a small business there in the Houston area. (They do leak testing in the refinery & chemical business.)

Let me know how to get them together if you or they have interest.

I do enjoy your e-mails monthly.

Thanks,

DCS

A.  He has a problem.  Conventional lenders do not want loans of $50,000.  Private lenders only go up to 70% of value and a $5000 loan is not worth the time and effort let alone legal expense (last one cost $1400) to do. Best he run an ad or ask a friend.

BZ

Q.  I have $250,000 to invest which should secure over $1,000,000 in property at an 80% lend (90% would be better).  I need to achieve at least a $100,000 per year net cash flow from this.

I am currently looking at Buffalo, Pittsburgh and Philadelphia which all look promising.  Maybe I can find a "local market" lender in those areas.  I am also aware that Florida, Houston, Washington and Nevada are good at the moment.

Which of the above locations do you feel I should focus my research on to fit my goal?

I have been doing some further research and it is time that I formalized what lending I have available to me.  What loans are you able to provide for me in my Australian trust?  Can you send me some information on the loans you can organize and what you would need from me to enable the lender to give written approval (unconditional)?  At this stage I am still focusing on Buffalo.  Best regards

Mike

Melbourne, Australia

A. 

I make loans in 46 of the 50 states.  I have not heard much about Buffalo, Pittsburg or Philly as being growth areas.  They generally give good cash flow however.

The other four have had loss of rapid price appreciation for the last two or more years.

Your numbers are right on investing. $250,000 will get you a $1,000,000. However a cash on cash return of 40% is really out of the realm of the possible.  If someone tells you differently, they are just blowing smoke!

If you buy and sell a few times and build your investment base, maybe.  It also might be possible to make after tax profits of that level and do it again the next year.  But cash on cash is not that super in the US and we have some of the best return around the world.

I just did a shopping center with some students that took $500,000 down and paid 15% but that was a fabulous return.

I might be able to do that on tax sales or hard money loans, but equities, just on cash flow, no.

Just being honest.

I moved to Texas because it has the second highest population growth (behind California), and it is still relatively cheap.

I expect great appreciation and good deals.

Let me know if you are serious and need help and we can set something up.

Loans here are three kinds:

·         Residential, 1-4 family.

·         Commercial and investment

·         Private

U.S. lenders will not lend to a trust on a 1-4 family.  It would have to be to you and then you put the property into a trust.  1-4 family are covered by RESPA laws and most of the loans are uniform in style and policy.  A commercial lender might loan to a trust but you would pay for the lack of personal liability.  You would pay in lower loan to value ratio and perhaps interest.  

Private lenders are asset based lenders and do loan to any entity but with only low loan to value loans and at high interest rates.  If this is a 1-4 family, go to www.zickhomeloans.com.  You will need "papers" to borrow here and that will take a while but that is the site.  We will soon have another site up for commercial loans.  Is this one?  Same for hard money or private loans.

BZ

Advanced Strategies:

Recently a student told me about a duplex and 4-plex he just closed on in Florida.  He stated he is looking for the highest and best use and is thinking of converting to condos.  Since he’s never done that before and knows very little about it, he asked for my input.  The only additional information he provided to me is that there are condos and apartments all around them in the ocean block. 

I advised him to consult a lawyer that specializes in this and to run the numbers.  He needs to pull comps, etc.  The numbers dictate.  And he needs to be negative when estimating sales price.  There are 18,000 condos being built now and about 3,000 purchased each year, or some such numbers.

The basic advantage of converting to condos is for profit.  You are selling an income producing asset, so be sure to get all you can.  The sum of the parts (condos) must be greater than the whole (apartment building) when sold.  There is no rule of thumb on increased value from condos.  I told him he needs to know what condos around there are worth.  Remember you have to make the interiors top notch.  That means latest décor and new appliances, maybe $10,000 per unit.  Take sale price, less cost of sale, less cost of fix up, less cost of legal, less cost of buying and see if you have a profit that makes it worth the hassle.

Q.  I want to ask for your experience on a couple of deals that I have going on.  First deal is a lady that wants to give me her house just to take over payments.  Her mortgage balance is $61,440. with monthly payments of $707. PITI.  What I want to do is get her to sign over her deed to me and I promise to pay her monthly payments until I sell her house and it is paid off with another loan.  I need to do some work in the house and want to protect myself.  What is the procedure that you think I should follow?  I have an attorney and he claims that all these seminars I have gone to are a scam and will bite me - you know where.  I have told him that I do not want to close on this property, but only to tie it up so that I can retail it.  He finally says he can do the paper work, and can do it for #$%%&***.  I know that you have been there.  If I had a complex deal I would use an attorney to draw up the papers, but I figure that this is quite simple.  I just have not done one of these and want to protect myself and do it by the numbers.  Please outline what you would do.

The second deal I mentioned to you in Austin is that the owners of a house died.  The woman left only a power of attorney to her brother before she died.  No other kin.  I spoke to the attorney’s assistant that tried to probate or settle the estate, but the brother is 86 and does not trust attorneys.  The lady told me that he will inherit the house, but must go to probate and finish up if the judge has not already thrown it out.  The cost she said would be between $2,500 and $3,500 to finish up the probate.  So Barney, what do I do and how would you lay this out for me.  Remember that I am that slow talking cowboy from south Texas.  Get in your overalls!!  If you would rather call, or me call you, just let me know what is a good time for you.  I know you’re a busy man and I told Karen that I would not hesitate to call you on your cell if I had something big, but I have until Thursday or Friday on the first deal.

Thanking you in advance...

Sincerely,

RG

A.  You did not tell me the profit on the first house so I will assume you have one.  If you do not want to put the house in your name, why not get an option to buy the house for the amount of the back payments plus $1.00?  Say clearly in the option that the deed is being given to you and after you have had enough time to check the title, review the marketability of the house and try to find an end buyer, you will record the deed to you or to your buyer.  Make sure you are clear (maybe in bold letters) if you do not get a positive response you will void the deed and return it to the owner.  In the meantime, you will keep the payments current.  Then get the deed signed and notarized.  Get a notice of option notarized and recorded.  Then follow through.  I will never tell any student not to get an attorney but I do these monthly without one.

On the second deal, you have two choices.  Have them give you the deed, don’t record it but go to the court to see what has to be done.  It will be time consuming but a great “seminar.”

Or, work with an attorney.  I would pick the latter if there is enough profit in the deal but then I am hiring everything done, including taking my laundry out, in that I am out of time every day!  If you are just watching the Texas pecans grow, go to court.

BZ

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